Ex-U-M athletic director Dave Brandon couldn't save Toys R Us

Looking for going out of businesses deals? Got unused gift cards? Here's what shoppers need to know as Toys R Us shuts down its stores.
USA TODAY

Dave Brandon, CEO of Toys "R" Us, right, greets candidate Jessalyn Phanouvong during the debate for the President of Play position in September 2016 in Paramus, New Jersey.(Photo: Bennett Raglin, Getty Images for Toys "R" Us)

Dave Brandon, the former University of Michigan athletic director and Domino's Pizza chief executive, is at the helm of Toys R Us as the iconic toy retailer prepares to liquidate and likely close all of its remaining 735 U.S. stores.

Brandon, 65, has been chairman and CEO of Toys R Us since July 2015, overseeing the 70-year-old retailer as it struggled amid changes in consumers' buying habits and a heavy debt load from the leveraged buyout of a decade earlier.

Brandon enjoyed a total $11.25 million CEO compensation package in 2017, a year in which Toys R Us filed for Chapter 11 bankruptcy amid more than $5 billion in debt. That pay package included Brandon's $2.8 million retention bonus, paid five days before the retailer's Sept. 19 bankruptcy filing, to help with continuity through the process.

He arrived at Toys R Us following a nearly five-year tenure as athletic director for U-M, his alma mater, where he played football for legendary coach Bo Schembechler.

Brandon increased the athletic department's revenues and achieved budget surpluses, but he generated controversies, including unpopular changes to the student seating system and marketing missteps that irked U-M traditionalists. He was also criticized for his handling of the 2011 search for a head football coach that led to the hiring of Brady Hoke.

Before that, he was CEO of two major Michigan-based companies, Domino's Pizza and direct-mail giant Valassis.

Retail and marketing experts do not blame Brandon for the demise of Toys R Us, which some saw as inevitable given the shift to online shopping and competitors such as Amazon.com, which can price toys at very low margins.

Compounding matters, lingering debt from the retailer's 2005 buyout by Tornado Realty Trust and private equity firms Bain Capital and KKR & Co. gave Toys R Us little room to maneuver its business model or invest in its stores.

A woman shopping at a Toys R Us store in Alhambra, Calif. in December 2017(Photo: FREDERIC J. BROWN, AFP/Getty Images)

In the end, Brandon proved unable to transform Toys R Us – or perhaps even save a portion of it – and the move to completely shutter the once-popular business could mar his legacy as a successful businessman and leader. The shutdown could eliminate more than 30,000 jobs.

"I think he thought he could get in there and turn it around," said Jeff Stoltman, marketing professor at Wayne State University's Mike Ilitch School of Business. "But there are forces sometimes that are even bigger than what a strong leader can reverse.”

A multimillionaire before he took the Toys R Us job, Brandon has seen his own fortunes rise even as the toy retailer's fortunes plummeted.

A Toys R Us representative this week defended the $2.8 million retention bonus on the eve of bankruptcy.

"Retention payments are standard practice in these type of situations and are designed to ensure stability during a critical time for the company," Amy Von Walter, a company spokeswoman, said in an email.

Brandon could have snagged millions more in incentive bonuses this year, but those weren't awarded because Toys R Us reported a particularly bad holiday shopping season.

High-end real estate

Brandon indulged his taste for high-end real estate during his time at Toys R Us.

Last May, he reportedly paid $15.2 million for a luxury penthouse at The Carlton House on Manhattan's posh Upper East Side. His 3,500-square-foot unit includes three bedrooms, a library and a large terrace with views of Central Park.

For a period before the penthouse purchase, Brandon had been living in the ultraluxury residential skyscraper called One57. The unit where he stayed had been listed on the rental market for $45,000 a month.

Brandon made local headlines in 2016 when he put his massive, custom-built mansion outside Ann Arbor on the market with a $7 million asking price. The futuristic house was constructed by Brandon and his wife, Jan, in the late 1990s and features a sleek, horseshoe-like shape and a massive circular driveway with a fountain.

Property records show the mansion, situated on 4.5 acres in the village of Barton Hills, is still owned by Brandon. The property is no longer listed as for sale. Brandon remains current on the property's $13,253 yearly village tax bill.

Liquidation

The retailer initially hoped to keep 400 stores open, but determined that wasn't possible amid a projected cash-burn rate of $50 million to $100 million a month.

Still, the company said it remains possible that 200 U.S. stores might be preserved through a combination with its Canadian stores.

Some retail analysts were surprised that Toys R Us could immediately liquidate, as other struggling retailers such as Sears and Kmart have managed to linger on for years amid waves of store closures.

But Van Conway, CEO of Birmingham-based management consulting firm Van Conway & Partners, said he wasn't so surprised by the decision because Toys R Us has less real estate and in-house brands than Sears that it can sell to stay afloat, such as Sears' former Craftsman tool line.

“Given the dynamics of that situation, I don’t think there was any survival plan," Conway said.

Brandon might have possibly bought Toys R Us some more time by closing underperforming stores faster and accelerating its push into e-commerce, said Ahmet Kirca, associate professor of international business and marketing at Michigan State University.

Still, the final outcome for the company would have likely been the same, he said.

A resume of success

Before starting as U-M's athletic director in 2010, Brandon had been CEO of Domino's, where he acquired his reputation as an effective manager.

"He took the helm at Domino's and he did an excellent job over there," Kirca said.

Brandon was installed as Domino's top executive in 1999 by Bain Capital, then headed by Michigan native Mitt Romney and which bought the pizza chain from Tom Monaghan.

Brandon went on to lead Domino's through the largest initial public offering in restaurant history in 2004. Years later, Brandon netted tens of millions of dollars selling his Domino's stock.

Bain was still nearly a one-third owner of Toys R Us last fall when it plunged into bankruptcy.

Prior to entering the pizza business, Brandon was president and CEO of Valassis, the Livonia-based advertising company that is a longtime direct-mail leader.

He also spent eight years on U-M's Board of Regents and is currently on the board of directors for DTE Energy, Herman Miller and Domino's.